Blue’s clues for top schools: Lessons from KIPP STRIVE

On November 9-10, the US Department of Education bestowed the Blue Ribbon award to 285 public schools and 50 private schools across the country. The goal of the 33-year-old program is to recognize the best performing schools in the nation: public, charter, private, magnet, alternative or Title I.

For teachers, students and families, the Blue Ribbon award is a huge accomplishment. “This honor recognizes your students’ accomplishments and the hard work and dedication that went into their success…You represent excellence—in vision, in implementation, and in results—and we want to learn as much as we can from you,” said US Secretary of Education Arne Duncan in a video message to the awardees.

The majority of 2015 Blue Ribbon winners — 303 of 335 schools — fall into the “Exemplary High Performing” school category. This means the school is among the top 15% as measured by its test results in English language arts and mathematics, among other criteria. This year, fifteen Blue Ribbon winners are charter schools, and five of the charters are Title I status. KIPP STRIVE Academy in Atlanta is one of the five Title I charter schools, and it was the only middle school to receive the award.

KIPP STRIVE’s student body — 99% black and 78% qualifying for free and reduced-price meals — are shattering demographic and class-based myths about student achievement. Results from Georgia’s 2013 test show that KIPP STRIVE students are outperforming statewide results, as seen below.

2013 CRCT RESULTS

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Once students graduate, a number of them enroll in high-performing public high schools or earn a scholarship to attend a private high school. Contrary to popular belief, KIPP STRIVE’s leadership is not enticing the “best and brightest” students to enroll at KIPP STRIVE just to boost test scores, a claim opponents of charter schools often make.

I was blessed to work with a diverse group of visionaries from 2007-2009 to open KIPP STRIVE. Today, I am proud of what the school is doing to prepare its students for high school, college, and beyond.

As I reflect on the opening of KIPP STRIVE, I wanted to share some things I learned about school organization that other founding school board members or Parent-Teacher Organizations (PTO) across the country should keep in mind.

A quality principal matters—a lot: Leadership is essential to any school. Ed Chang, our founding principal, was well trained through Building Excellent Schools and the Fisher Fellowship. Find a principal with the requisite qualifications for leadership and invest in additional professional development.

 Regulatory relief matters: Our principal hired all teachers and staff, managed the school budget, and negotiated many of the school’s contracts. Georgia’s charter law, coupled with supportive Atlanta Public School regulations, made this possible. School founders and PTO members should push for site-based autonomy. In my experience, shedding layers of bureaucracy gives school leaders the best chance to create well-functioning and high-performing schools.

Board members do not manage a school: Trustees must stay in their lane — they need to govern, and not crossover into school-level management. Board members must leverage their professional network to support the school and let the principal do the managing.

A school-parent partnership is more than a slogan — it must be a lifestyle: KIPP STRIVE’s principal and board members visited nearly 150 homes to speak with parents about the mission of the school, our expectations of students, and our expectations of parents.  Parents are unaccustomed to school personnel visiting their home, but these conversations are important for conveying the belief that parents have a bargain to uphold, too.

Creating a Blue Ribbon school like KIPP STRIVE does not happen overnight. It takes intentional and thoughtful leadership, and it requires conditions that allow those leaders to have the autonomy to act on their innovative instincts.

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Race to the Top in retrospect

Today, Secretary of Education Arne Duncan is giving a speech at a high school in Boston that has improved after receiving a federal School Improvement Grant (SIG). He’ll be unveiling his department’s latest report on the results of the SIG program and a new four-year report on Race to the Top, the Obama administration’s signature initiative in K-12 education.

Secretary of Education Arne Duncan visits Boston on November 12, 2015. Department of Education Flickr.

The report casts SIG in a favorable light, and claims that Race to the Top has helped plant the seeds for long term change. Color us here at AEI skeptical.

This summer I penned an essay in Education Next on the legacy of Race to the Top, an effort that:

could have designed a program that told the states, “Give us your best ideas, and we’ll fund the states that are pioneering the most promising approaches.” … Instead, the administration proposed 19 “priorities” that states seeking Race to the Top funds would be required to address. States could earn points in each category by promising to follow administration dictates, with the most successful states winning the cash. Few of the priorities entailed structural changes. Instead, they mostly emphasized things like professional development, ensuring an “equitable distribution” of good teachers and principals, “building strong statewide capacity,” “making education funding a priority,” and so on. ….

In the end, the effort suffered for its emphasis on promises rather than accomplishments, ambiguous scoring criteria, and murky process for selecting and training judges. Conservative analyst Chester E. Finn Jr. concluded that the review process didn’t reflect “what’s really going on in these states and the degree of sincerity of their reform convictions.” The reliance of winning states on outside consultants and grant writers also meant that the commitment of key legislators, civic leaders, or education officials to the promised reform agenda could be pretty thin. Every one of the dozen winning states has come up short on its promises.

But even though the program did not live up to its promise, there are valuable lessons it taught. Here are two:

Build Reliable Infrastructure. It was no fault of the Obama administration, but the infrastructure to do Race to the Top well simply didn’t exist. Criteria for who should judge and how they should do so were made up on the fly. The need to do this in a hurry, along with conflict-of-interest rules, made it hard to assemble a first-rate pool of reviewers. U.S. Department of Education officials also had to combat concerns about the review process appearing too “political.” In the future, clear norms regarding reviewers, criteria, use of evidence, and institutional autonomy should be established before such programs are created.

Beware of Opportunity Costs. The Obama administration dangled $4 billion in federal funds at the height of the Great Recession and linked them to states demonstrating that they’d “prioritize” education spending. At a time when states could have been using the crisis to focus on finally doing something about underfunded pensions or much-needed belt-tightening, they were preoccupied with dreaming up new spending proposals. Opportunity costs don’t just come in policies pursued and tabled, but also in the debates that policymakers should and don’t have.

For the whole thing, feel free to peruse the full article.

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A ‘perfect storm’ for the emergence of drug-resistant bacteria

Are we reverting to a pre-antibiotic age? Dirty hospitals, poor prescribing practices by physicians and poor patient adherence to correct antibiotic use mean that routine medications are becoming increasing obsolescent.

Twenty20 License

The risk is accelerating because of new global substandard medicines — caused by inferior ingredients or inadequate production techniques — that are driving a new wave of antimicrobial resistance (AMR). With few financial incentives for major pharmaceutical companies to find new antimicrobial agents, the future may be bleak. Old medicines will become obsolete, and few new medicines will be there to replace them.

The U.K. government considers that AMR could cost society a fortune within decades — perhaps a six percent reduction in global wealth, or up to $14.2 trillion ($14,200 billion) by 2050. In my just-released study on how substandard medicines contribute to antimicrobial resistance, I found that the threat of AMR is increasing due to poor quality medications, and that India is ground zero when it comes to most of these problems.

Research by physicians and scientists at the University of Queensland in Australia suggests that treatment with substandard medicines containing sub-therapeutic concentrations of active ingredients causes resistant strains to breed uncontrolled.

Yet, in the cutthroat world of cheap generic drug production, the lowest cost usually wins the contract to supply — whether to a pharmacy chain, hospital, or even a large government program. As a result, legitimate manufacturers are constantly looking for ways to lower costs and beat the competition. In the West, decent regulators and quick feedback from physicians means that poor quality producers are not likely to survive in the market. But in emerging nations, sloppy production is unlikely to be detected. And in some, notably India, where the government prioritizes protecting the industry over public health, corner-cutting production is actually defended by the government.

While these products are sold as generics, they should not be regarded as such. They are not the bioequivalent of innovator or generic products; many don’t even pass basic physical and chemical stability analysis. They are simply poorly made by legal manufacturers, and they undermine the reputation of real generics.

My team’s research found that roughly six percent of several thousand samples of antimicrobial medicines bought from 19 emerging nations were substandard. India is often viewed as the pharmacy to the developing world, and many of these products are made by legal and government-protected Indian manufacturers. While the vast numbers of cheap medicines produced in India have undoubtedly saved countless lives, their cheap production is a double-edged sword.

Given that antibiotics are so cheap in India, antibiotic use has become, in effect, a substitute for proper sanitation. My researchers found important medicines (like the carbapenem antibiotics that are used to treat infections caused by multi-drug resistant bacteria) available over the counter — in a handful of cases, even without a prescription. In the West, these medicines are strictly used as a last resort for controlling AMR, administered only in hospitals and by trained medical staff.

Another example of the Russian roulette being played in India is the startling number of multi-drug resistant bacteria that were discovered in the public water supply in New Delhi.

While India is not alone in proliferating sub-standard manufacturing, the confluence of inexpensive medicines, sometimes of dubious quality, widespread use of antibiotics, instead of the more traditional and effective methods of hygiene, in addition to the physician incentives to over-prescribe and the vast dense urban settings, have created a perfect storm for the emergence of drug-resistant bacteria. The global spread of the highly resistant New Delhi beta-lactamase-1 (NDM-1) plasmid may have been exacerbated by substandard antibiotics. NDM-1 was first identified in 2008 in a Swedish patient returning from India with Klebsiella pneumonia. It has now been found in 70 countries. National borders are no defense unless strict quarantine measures are in place, such as occurred with the recent West African Ebola epidemic. No one has called for that yet, but it might need to happen at some point.

Rich nations generally have fewer poor quality medicines caused by too few or incorrect ingredients. The problem is more that the formulation of some imported medicines is not as precise and, hence, they don’t function as well, or sometimes at all, by comparison to generic drugs made at home.

This lack of equivalence has been found across a wide range of antibiotic agents including vancomycin, amoxicillin, meropenem, gentamicin, and ciprofloxacin. For vancomycin, the therapeutic failure of allegedly generic vancomycin led to MRSA peritonitis and bacteremia. European and U.S. authorities have boycotted hundreds of Indian-made products that have not shown full equivalence. The German government, for example, suspended 80 Indian products made by 16 companies because they failed established standards and lacked bioequivalence.

It is time for the international medical community and global regulatory bodies to agree on a more effective way to identify substandard antibiotics and remove them from the supply chain. Otherwise, we can look forward to a return to the “pre-antibiotic era” of fatal infections, where quarantines become a way of life, and currently routine surgeries and diseases transform into life threatening situations.

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New Carpe Diem economic news and data quiz

Test your knowledge of recent economic news and data, most of which has been featured in recent posts on the Carpe Diem blog, with this new 10-question quiz.

Loading Carpe Diem Economic News and Data Quiz

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If not this TPP, then what?

Whatever the merits of the existing Trans-Pacific Partnership agreement, it might not be ratified. A number of Members of Congress who may refuse to vote for the Trans-Pacific Partnership (TPP) are avowed free traders. Free traders who find the TPP inadequate as it stands are obliged to offer a sensible alternative, because this opportunity should not be lost.

The problem: there may be no such alternative. Unfortunately, it is probably unreasonable to expect the current administration to renegotiate – this is what they achieved given their priorities.

Japan’s Economics Minister Akira Amari (L) with a journalist, next to U.S. Trade Representative Michael Froman, during a news conference after a four-day (TPP) Ministerial meeting in Singapore February 25, 2014. REUTERS/Edgar Su.

Turning to the next administration, it is hugely encouraging that the next president will have Trade Promotion Authority through his or her first term, where President Obama has only possessed it for a few months. Odds are good the next president will be interested in putting his or her own stamp on trade, as President Obama did in 2010.

The far bigger challenge is successfully renegotiating with 11 partners; they cannot simply be ordered to grant better terms. The simplest step is to renegotiate several key items, perhaps starting with converting non-conforming measures into free trade commitments with long phase-ins. Crucially, asking for more requires the president and Congress to be willing to offer more.

If this cannot work, free traders should not abandon the TPP. The next step would be to shrink the number of participants in the first round. This will harm US relations with the governments (temporarily) excluded and general American credibility to some extent.

However, these costs are far less than the cost of rejecting the TPP or signing what proves to be a weak TPP. Further, the logic of the TPP is for few members and a stronger agreement. The TPP exists in large part because the WTO has become so unwieldy as to make progress there all but impossible.

The US could shunt to a second TPP round the one or two countries which are making the most troublesome demands. It is again true that American side would have to make more concessions as well in a first round with countries more committed to free trade.

A final option is to first conclude a bilateral agreement with Japan that eliminates some flaws in the TPP. The motivation is a good chunk of the short-term benefits from the TPP for the US stems just from the inclusion of Japan. The immediate, sizable obstacle is that neither side may be truly willing, and free trade advocates should be highly cautious in touting this alternative.

Nonetheless, a major accomplishment of the Obama administration was to fold Japan into the TPP, where Japan signing a genuine free trade agreement seemed unthinkable a decade ago. It is now “thinkable” and, indeed, a good deal of work has been done. A US-Japan agreement would set terms for reciprocal access to the Japanese market and serve as the core of an improved TPP.

TPP proponents emphasize that the deal is much better than nothing. The alternative is not nothing. It will certainly not be easy to strengthen the TPP but it is possible and the US would benefit greatly from a strong TPP.

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TPP: A bronze-standard free trade agreement (go for gold)

The Trans-Pacific Partnership covers an enormous amount of ground and has important strengths and multiple weaknesses. Claims of its broad magnificence or awfulness are not credible.

The view here stems from reading all 30 chapters, the four bulky annexes, and various side letters. The first read (a longer paper will follow) says the Trans-Pacific Partnership (TPP) offers a net gain to the US but has too many long-term flaws to be considered a high-quality free trade agreement at this point.

Twelve nation members of the TPP hold a meeting in Lahaina, Maui, Hawaii July 28, 2015. REUTERS/Marco Garcia.

The key issues in reaching this conclusion:

Agriculture

Agriculture market access unquestionably improves under the TPP. Soybeans, a key American export and global foodstuff, would see open trade. This is also true for other products and, if TPP terms were extended globally, there would be hefty gains.

Most American agriculture producers will be understandably happy but, in the long term, the TPP may be seen as a lost opportunity. A number of countries, led by Japan, retain barriers that can in part be traced to retention of America’s own agriculture trade barriers. This is self-defeating behavior for the world’s largest agriculture exporter.

Intellectual Property (IP)

The IP chapter also constitutes a substantial improvement over current global treatment. In a much-needed step, the TPP extends explicit protection to digitized information and trade. And it updates IP protection elsewhere, for example with regard to geographical indications.

IP advances are unavoidably uneven and areas that lag will be keenly felt in the US, the top innovator. For instance, host countries can take up to five years to consider a patent application while protection of technical data can last as little as five years. This combination can undercut the incentive to innovate.

New Areas

The TPP breaks new ground on a number of fronts. The most obvious is e-commerce, which deservingly and beneficially gets its own chapter.

More subtle are the TPP’s broad accomplishments on transparency, which appear in a variety of chapters. With 12 economic and regulatory systems involved that can confuse individuals, companies, and even governments, transparency is the grease for progress from the TPP. This has been recognized in the terms.

Rules of Origin (ROO)

The one vital area where transparency is in question is ROO, which determine what is covered by the agreement. The ROO are generally loose, which fits with the free trade goal of promoting more exchange, not diverting existing exchange into a new bloc.

The problem is complexity. The content requirement to automatically qualify for the TPP is high and extensive rules for certain sectors look politically motivated. Some complexity is unavoidable but the TPP risks rendering firms uncertain how to take advantage of treaty terms and confusing customs agents charged with administering those terms.

State-Owned Enterprises (SOEs)

The SOE chapter sees a sharp tradeoff between present and future. It is a major step forward, especially on transparency, compared to essentially non-existent obligations for SOEs now. But it sets a dangerous precedent. There are too many ways to organize a state sector immune from TPP disciplines.

Sovereign wealth funds are immune, sub-national enterprises are largely immune, and national SOEs can fairly easily organize their subsidiaries to be immune, because a crude 50-percent rule is employed for ownership or board membership. Along these lines, the chapter erodes the argument that the US must set rules so China does not. China could game rules the US just set.

Non-conforming Measures (NCM)

The enormous amount of material on NCMs – where countries are allowed to ignore the agreement – make a case for the TPP overreaching in membership or issues or both. Non-conforming measures are unavoidable to some extent, but it is unwise to introduce new topics then allow precedents of non-compliance.

Vietnam, for example, should have been given long phase-in periods rather than outright protection from so many TPP requirements. The chapter on financial services is largely neutered by the annex on financial services NCMs. Transport services see a huge number of exemptions, possibly driven by America’s own harmful protectionism in shipping.

 

Two issues will receive more attention than they deserve:

Investor-state dispute settlement (ISDS)

Both sides of the debate exaggerate the importance of the ISDS chapter. It will not protect American companies from foreign governments if the latter wish to be predatory and it will not lead to meaningful change in American law. It matters, but not very much.

Exchange Rates

Currency is still more overblown. Japan has not been a currency manipulator for years. China is not a TPP member. Moreover, in 1994, China devalued the yuan 45% yet US unemployment fell to 4.6%. In 2005, China slowly revalued the yuan 30% and US unemployment rose. Exchange rates do not work the way protectionists insist.

 

There are groups loudly opposed to the TPP for whom the terms are a detail. For everyone else, the TPP comes down to a better trade environment in the short term versus long-term problems created by provisions that do not promote genuinely free trade.

In particular, innovation and agriculture are America’s main comparative advantages and the TPP offers notable improvement in both. It is sensible to argue these gains matter most. Against that are the painfully extensive non-conforming measures, badly inadequate treatment of state-owned enterprises, and risky rules of origin warping the future trade environment.

This may indeed have been close to the best agreement possible given the parties. But the outcome is a bronze-standard free trade agreement. The US must do better than bronze-standard free trade agreements.

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America vs. China: Showdown in the South China Sea?

“Expect more.”

That is the succinct response of a senior U.S. defense official when asked informally whether the dispatch in October of a U.S. Navy ship within 12 nautical miles of one of China’s newly constructed islands in the Spratly Island chain was a one-off event. Officials in the Obama Administration seem well aware that failure to follow on with their highly publicized freedom of navigation operations will send a signal of irresolve to China and Asia. The sail-through did little to settle the issue of Sino-U.S. tussling over the South China Sea, and the question now, is how will China respond.\

From one perspective, the length of time that it took Washington to make the decision to send the USS Lassen near Subi and Mischief Reefs itself is an admission that the Obama Administration remains wary of provoking China. Months of public comments by officials from the president on down resulted in no action until last week, and even then, it was but a lone U.S. destroyer sent to transit what until a few months ago had always been considered international waters. Even worse, claims that the destroyer engaged simply in “innocent passage” as opposed to any legally-allowed military activity on the high-seas further undermines the administration’s argument that it is not tacitly conceding China’s territorial claims.

From another angle, though, the sail-through was an acknowledgment that U.S. policy has failed. China has successfully built and militarized islands on what were formerly shallow reefs, and in doing so far dwarfed the efforts of other claimants in the disputed Spratlys. More pertinently, it has changed the “facts on the ground,” and created for itself power projection bases that greatly extend the reach of the Chinese military.

This is significant because no other nation makes claims nearly as expansive as China does, nor does any other nation have either as many territorial disputes or fields a military that it increasingly active in the region. China is qualitatively different, not just quantitatively, from its neighbors, and its policy of building militarized outposts astride the world’s most heavily-trafficked waterways must be understood as a potential threat to freedom of navigation and the maintenance of peace in Asia. By acquiescing in the existence of these outposts, the region accepts a greater degree of risk today than it did five years ago.

In many ways, the struggle over the Spratlys is less about the United States and China, than it is about China and its neighbors. Few observers expect Washington entirely to abandon its allies, reduce its presence, and alter its maritime operations. It is almost certain, moreover, that the next U.S. president will act with more firmness than the current one.

Yet China’s goal in the short-run is not to get the U.S. Navy to stop transiting the South China Sea. Rather, it is to alter the behavior of its neighbors and force the other claimants in the Spratlys to de facto surrender their positions. Such an achievement would both give China the dominant military position in the region, and also wind up isolating the Americans. After all, if other nations have given up trying to prevent China from altering the balance of power, then how can the United States act alone?

Thus, the assertion by the U.S. official above that Washington is just beginning its policy of pushing back against China. Freedom of navigation operations are as much about politics as they are about military maneuvers. Proving to allies such as the Philippines and potential partners such as Vietnam or Malaysia that the U.S. is serious about upholding international law and preserving the rules-based order that underpins Asian trade, is a crucial step to ensuring that China does not browbeat its neighbors into submission.

That is one reason that Washington needs to operate more with its allies and partners, and should conduct any future demonstrations with other nations who also feel threatened by China’s actions.

And what about increased risk, now that U.S. Pacific Command seems set on further operations? China angrily denounced the U.S. sail-through, and stated that in the future it would seek to prevent such actions. There is indeed a greater chance of an accident or skirmish between China and the United States. Both sides have ratcheted up their rhetoric to the point where even the attempt to peacefully resolve the situation can be interpreted as backing down.

Just as vexing will be “gray zone” situations. U.S. planners must prepare for a scenario where dozens of “private” Chinese fishing vessels seek to impede the safe passage of U.S. ships. Will the U.S. Navy run the risk of damaging or sinking ostensibly civilian vessels, no matter how dangerous to safe navigation?

The proof will be in the pudding. Either the U.S. Navy goes back into contested waters or it doesn’t. And either China tries to stop it or not. With the world watching, it will be very clear just who has the greater will.

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A last hurray for Republican tax slashers

The Republican party’s raison d’être is cutting taxes. It may even be its divine commission. God put Republicans on earth to cut taxes, the conservative columnist, Robert Novak, once said, and failure to do that means “they have no useful function”.

John Kasich, Jeb Bush, Marco Rubio, Donald Trump, Dr. Ben Carson, Ted Cruz, Carly Fiorina and Rand Paul pose during a photo opportunity before the debate. 11/11/2015 | Reuters

Republicans should pray for a new purpose. Their standing with middle-class voters is little improved from 2012. If Hillary Clinton becomes the 45th US president, it would be the first time since 1948 that the Republicans have lost three consecutive elections. Their “supply-side” orthodoxy would merit much of the blame. Big tax cuts, particularly for the wealthiest, do not work in an age of high inequality and heavy debt. Republicans need an economic agenda that respects markets while also recognising the challenges facing America and its anxious middle class.

Many of the party’s 2016 candidates seem to disagree that change is needed. Many have received the blessing of economist and supply-side evangelist Arthur Laffer and subjected themselves to vetting by the Committee to Unleash Prosperity, a group of era supply-siders from the era of President Ronald Reagan, including Mr Laffer and publisher Steve Forbes. Almost all have released economic plans built around “pro-growth” tax cuts costing trillions. At last month’s CNBC-hosted presidential debate, frontrunner Donald Trump dismissed a model showing his plan would reduce federal tax revenue by $10tn over the next decade: “The economy would take off like a rocket ship.”

Supply-side economics, primarily tax cuts but also deregulation and tight monetary policy, has driven Republican economics for decades, to great electoral success. But there are good reasons to view the next election as a last hurrah for Republican-style supply-side policy.

First, voters do not much care about taxes. Unlike a generation ago, more than half think their taxes are fair, according to a Gallup poll. Americans are sceptical low taxes produce broadly shared economic growth. A YouGov survey found only 29 per cent agreed lower taxes on the wealthy and business would generate higher incomes for all. The results are hardly surprising given recent history. The 1990s started booming after President Bill Clinton raised taxes. And the 2000s economy flagged despite George W Bush’s tax cuts.

Second, America’s fiscal situation makes deep tax cuts implausible. The federal debt-to-gross domestic product ratio is three times higher than when Reagan took office. There is more spending en route in the form of unfunded government pension and healthcare programmes. Starting in 2019, according to the Congressional Budget Office, such “mandatory” spending will begin an inexorable ascent as a share of GDP. Reforms to limit that rise will require higher taxes to win Democratic approval in Congress. Budget-busting tax plans seem ever more beside the point.

Third, tax cuts look like an answer desperately searching for a problem. Today’s top US marginal tax rate is 39.6 per cent, compared with 70 per cent before the 1981 Reagan tax cuts. The US is almost certainly not an example of the veracity of the Laffer curve, where lowering rates sometimes boosts tax revenue. Nearly half of households pay no federal income tax. And while targeted reform might help US economic dynamism, faster growth seems insufficient for broadly shared prosperity. Middle-class incomes have stagnated as inequality has risen.

America does need “supply-side” reform, but in ways that sync with how most economists use the term: expanding labour supply and boosting worker productivity. This would include business tax and regulatory fixes, but also policies to which Republican supply-siders give short shrift, such as education reform and public investment in infrastructure and science research.

There are signs candidates are starting to wriggle out of the supply-side straitjacket. At this week’s Republican presidential debate in Wisconsin, Marco Rubio said a larger tax credit for families was just as important as tax cuts for business. Ted Cruz would institute a value added tax, an efficient way to boost revenue for old-age prog­rammes. While 1980s-style supply-side doctrine still rules the Republican roost, it may not beyond November 2016.

The writer is a scholar at the American Enterprise Institute

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Downed plane reminds: War on terror not over

Evidence that terrorists destroyed a Russian civilian passenger plane over Egypt’s Sinai Peninsula continues to mount, although competent authorities still decline to say so definitively. It speaks volumes, however, that President Obama and British Prime Minister Cameron have already publicly mentioned the possibility of terrorist responsibility. Continued intelligence leaks about a bomb causing the crash and widespread suspensions of commercial flights to Sharm el-Sheikh, where the doomed plane originated, are also telling.

The remains of a Russian airliner which crashed is seen in central Sinai near El Arish city, north Egypt, October 31, 2015. Reuters

Accordingly, it is hardly premature to assess the consequences if investigators do decide that terrorists deliberately murdered 224 innocent civilians. Sadly reminiscent of Libya’s bombing of Pan Am 103 and UTA 772 under Moammar Qaddafi, the destruction of Metrojet Flight 9268 would prove tragically that the global terrorist threat continues to metastasize.

An ISIS affiliate in Egypt immediately claimed responsibility, but we cannot yet dismiss the Muslim Brotherhood, still locked in its decades-long conflict with Egypt’s military, as the culprit. In either case, terrorism would gravely weaken Egypt’s economy, particularly tourism, which has been struggling to emerge from the Arab Spring’s turmoil and violence. This potentially long-lasting economic damage explains Cairo’s reluctance to conclude publicly that terrorists caused the airliner’s destruction.

Metrojet’s Russian owner, by contrast, was quick to rule out mechanical failure or pilot error for the opposite but equally obvious desire, to escape responsibility. Moscow’s aviation authorities have been more circumspect, perhaps at the Kremlin’s behest.

Vladimir Putin’s bigger problem is the setback the tragedy may pose to his pursuit of a very forward Russian foreign policy, not only in the Middle East, but also in and around the former Soviet Union and even globally. In Ukraine, for example, Putin has reaped nationalist plaudits and political support in substantial part because casualties to the intervening Russian military forces have been so light. Were Moscow’s casualties to increase measurably, which could occur if NATO members were to provide Kiev with adequate weapons, training and advice, the Kremlin’s calculus would change overnight.

Putin’s considerations in the Middle East are similar, but even more problematic from the perspective of Russian domestic politics. His widespread efforts to restore Moscow’s regional influence to Cold War levels currently enjoy general popular approval. If, however, these tragic civilian deaths are in retaliation for Kremlin support to the Assad regime, as the ISIS affiliate has claimed, they directly threaten Putin’s broader strategy.

Learn more:

• 5 questions every presidential candidate should answer on ISIS

And if ISIS is responsible, it will be the biggest single mistake these terrorists have ever made. Once the crash’s cause is determined, Putin will have little choice but to inflict punishing retribution, both because he will likely believe it required geopolitically, and for his own domestic political reasons. Otherwise, the murdered civilians, and the risk of even greater anti-Russian terrorism, would call Putin’s penchant for adventurism into question, not just in the Middle East, but also in Europe.

Americans will shed no tears watching Russia destroy ISIS targets. For now, we cannot know whether Russian retribution against ISIS would be a one-time affair or would lead to protracted military conflict. Putin might satisfy his domestic political imperatives with one strike. Whatever the length and extent of the Kremlin’s response, greater Russian military conflict with ISIS does not mean Moscow will solve that problem for us. Moreover, if Putin responds with punishing force against ISIS, America’s regional allies will wonder why Obama has failed to do the same.

Learn more:

• 5 questions every presidential candidate should answer on the Putin regime

Nor will Russian military action alleviate in any way Washington’s fundamental problems in the Middle East. These remain our declining interest and influence; the growth of regional powers like Iran and ISIS that directly threaten America and its allies; and the rise of Russian influence in what was heretofore a U.S.-dominated region. If anything, Washington’s tasks are likely to be complicated by more evidence of vigorous, indeed belligerent Russian activism. And the principal regional threat will still be the terrorist-financing, nuclear-weapons aspirant Iran, which remains Putin’s most important Middle East ally.

Obama’s conduct notwithstanding, there will be no pirouette away from the Middle East for the next president. The global war on terrorism must continue, most definitely including ISIS.

John Bolton, former U.S. ambassador to the United Nations, is a senior fellow at the American Enterprise Institute.

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Senator Cruz, VATs are paid by people

As I pointed out last month, Senator Ted Cruz’s proposed 16% value added tax (VAT) and Senator Rand Paul’s proposed 14.5% VAT would be largely invisible to taxpayers because they would not be listed on customer receipts or pay stubs. And both candidates’ insistence on calling their VATs “business taxes” disguises the burden that the taxes would impose on American workers, including those at lower income levels.

Senator Cruz’s remarks at Tuesday’s Republican debate illustrate the danger of this tax camouflage. In response to a question from Fox Business Network journalist Maria Bartiromo about his plan, Cruz said, “for a family of four, for the first $36,000 you earn, you pay no taxes whatsoever. No income taxes, no payroll taxes, no nothing.”

U.S. Republican presidential candidate and U.S. Senator Ted Cruz greets supporters in Concord, New Hampshire November 12, 2015. REUTERS/Brian Snyder.

Apparently, the family’s 16% VAT burden doesn’t count. According to Cruz, this family wouldn’t pay the VAT and neither would anybody else. The revenue would simply materialize out of nowhere.

Senator Cruz’s response, which follows a similar statement in his recent Wall Street Journal op-ed, reveals that his proposed VAT’s hiddenness is a feature rather than a bug. His plan would make the tax hard to see precisely so that people could be told that they’re not paying it. The government would subtly and relentlessly tax away 16% of workers’ real wages while assuring them that they’re paying “no taxes whatsoever.”

Instead of challenging Senator Cruz’s breathtakingly false statement, Ms. Bartiromo oddly chose to press him about his plan’s revenue loss. As Cruz pointed out, though, the Tax Foundation estimates that his plan would have a smaller revenue loss than most of the other Republican candidates’ plans. At first glance, it may seem surprising that his plan would lose so little revenue while offering bigger individual income tax cuts than any of the other plans and eliminating payroll taxes, the corporate income tax, and the estate and gift tax.

But, there’s no mystery. Because the VAT is such a powerful revenue-raiser, a 16% rate would suffice to replace most of the foregone tax receipts. It also makes sense, as Cruz further pointed out, that the Tax Foundation projects a significant boost to economic growth from his plan. The VAT is growth-friendly because, unlike the individual and corporate income taxes and the estate and gift tax, it doesn’t penalize saving and investment.

It’s true that the VAT can raise large amounts of revenue without impeding the capital accumulation that helps drive economic growth. But it’s not true that VAT revenue comes out of thin air. Like other taxes, VATs are paid by people. And it’s wrong to tell the people who bear a tax that they’re not paying it.

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Minimum wage proponents narrowly focus on more money. Opponents focus more broadly on maximizing opportunities

In a Cafe Hayek post today on the minimum wage (“A Sufficient Reason to Oppose the Minimum Wage“), Don Boudreaux writes:

A sufficient reason to oppose the minimum wage is that it prices some people out of jobs that they would otherwise have voluntarily chosen to take. The number of people priced out of jobs is, for me, irrelevant to this assessment (although, of course, the greater the number of people priced out of jobs by the minimum wage, the worse is the magnitude of its undesirable and unwarrantable effects). Even if only one person is priced out of a job by the minimum wage (or more precisely, even if only one person is priced out of the job that he or she would have chosen to take in the absence of the minimum wage), I have sufficient reason to oppose it.

Nearly all politicians and popular pundits who endorse the minimum wage insist that it has no ill consequences for low-skilled workers. I have never heard the likes of Barack Obama, Hillary Clinton, Bernie Sanders, Andrew Cuomo, Jerry Brown, or Robert Reich ever, when pleading for a higher minimum wage, say something akin to “Many of you low-skilled workers will get a raise but some of you will be priced out of your preferred jobs. Indeed, some of you low-skilled workers are likely actually to be cast indefinitely into the ranks of the unemployed. But worry not, I’m guessing that each of you prefers to have a higher chance of being indefinitely unemployed because this higher chance of being unemployed comes along with a higher wage in the event that you do find jobs.”

At least the above announcement would be more honest than is the typical announcement that portrays the minimum wage either as a miraculous free lunch or as a policy the full costs of which are borne exclusively by people other than low-skilled workers. The above announcement would be even more honest if the pol or pundit making it would add that the increased prospects of being rendered unemployed by the minimum wage are not randomly distributed. In fact, those workers who are disproportionately likely to be rendered unemployed are workers who are least-attractive at the higher wage to employers (workers, say, such as inner-city minority single moms with neither high-school diplomas nor reliable means of personal transportation) while those workers who are disproportionately likely to remain employed at the higher wage are the ones who are most-attractive at the higher wage to employers (workers, say, such as retirees with long work experience who are drawn out of retirement by the higher minimum wage).

Don’s post made me think another way to view the arguments for and against the minimum wage.

Those who support increases in the minimum wage (Barack Obama, Hillary Clinton, Bernie Sanders, Andrew Cuomo, Jerry Brown, or Robert Reich) focus narrowly and almost exclusively on only one obvious and inevitable outcome — higher monetary wages for some unskilled and limited-experienced workers — while ignoring almost all other outcomes. Here’s how I would summarize the position of minimum wage proponents:

Maximize the monetary wages earned by some unskilled and limited-experience workers through government fiat, without regard to the many inevitable delayed, hard to measure, and invisible negative consequences of such policies on: a) unskilled workers and b) the companies that hire those workers.

On the other hand, I would suggest that supporters of a market-determined wage (minimum wage opponents) take a much broader and comprehensive view of the labor market for unskilled workers, and is a view that is much more humanistic and compassionate towards unskilled workers than the “greedy, grab as much money as possible” approach of Robert Reich et al. Here’s a summary of some of the goals of minimum wage opponents:

1. Maximize jobs and employment opportunities for unskilled workers.

2. Maximize the number of work-hours available to unskilled workers.

3. Maximize the chances that the highest number of unskilled workers will get the greatest amount of on-the-job training.

4. Maximize the chances that unskilled workers will get the greatest amount of non-wage fringe benefits (employee discounts, free or reduced cost meals, bonuses, raises, profit-sharing, healthcare benefits, etc.) and other non-wage job attributes (quality of workplace environment, flexibility in scheduling, upward mobility, etc.).

5. Minimize the likelihood that unskilled workers from minority groups will be victims of discrimination in the labor market.

6. Maximize the chances that existing small businesses that hire unskilled workers will prosper.

7. Maximize the chances that the greatest number of new small businesses that hire unskilled workers will emerge.

Bottom Line: Even though minimum wage proponents are generally characterized as being “compassionate” towards unskilled workers, I would suggest that they are primarily advocating a position of greed on behalf of unskilled workers by narrowly focusing on getting more money for some unskilled workers through a government mandate – without regard to the very un-compassionate long-term outcomes of such a mandate. Unskilled and limited-experience workers who want the greatest chances to gain job experience, get on-the-job training, and develop job skills that make them more marketable (and more highly paid) in the future, will be much more effectively served by the position of the supposedly un-compassionate minimum wage opponents.

In the end, unskilled workers don’t need our compassion. They need jobs. And the way to maximize employment opportunities and jobs for those workers is clearly a (compassionate) world without minimum wage laws government mandated price floors that guarantee reduced employment opportunities for low skilled and limited-experience workers, especially minorities.

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A last hurrah for Republican tax slashers

Republican U.S. presidential candidates in the debate held by Fox Business Network for the top 2016 U.S. Republican presidential candidates in Milwaukee, Wisconsin, November 10, 2015. REUTERS/Jim Young.

From my new column in the Financial Times:

The Republican Party’s raison d’être is cutting taxes. It may even be its divine commission. God put Republicans on earth to cut taxes, the conservative columnist, Robert Novak, once said, and failure to do that means “they have no useful function”.

Republicans should pray for a new purpose. Their standing with middle-class voters is little improved from 2012. If Hillary Clinton becomes the 45th US president, it would be the first time since 1948 that the Republicans have lost three consecutive elections. Their “supply-side” orthodoxy would merit much of the blame. Big tax cuts, particularly for the wealthiest, do not work in an age of high inequality and heavy debt. Republicans need an economic agenda that respects markets while also recognising the challenges facing America and its anxious middle class. …

Supply-side economics, primarily tax cuts but also deregulation and tight monetary policy, has driven Republican economics for decades, to great electoral success. But there are good reasons to view the next election as a last hurrah for Republican-style supply-side policy.

What can be done?

America does need “supply-side” reform, but in ways that sync with how most economists use the term: expanding labour supply and boosting worker productivity. This would include business tax and regulatory fixes, but also policies to which Republican supply-siders give short shrift, such as education reform and public investment in infrastructure and science research.

There are signs candidates are starting to wriggle out of the supply-side straitjacket. At this week’s Republican presidential debate in Wisconsin, Marco Rubio said a larger tax credit for families was just as important as tax cuts for business. Ted Cruz would institute a value added tax, an efficient way to boost revenue for old-age prog­rammes. While 1980s-style supply-side doctrine still rules the Republican roost, it may not beyond November 2016.

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The EU leads boldly on Israeli-Palestinian peace

Yesterday, the European Union in its infinite wisdom decided to implement a demand that all products made in Israeli settlement the West Bank and Gaza be labeled. CNN explains:

Labeling such goods as “product from Golan Heights” or “product from West Bank” would not be specific enough and therefore would not be acceptable, the commission said. Instead, the goods would have to be labeled something along the lines of “product from the Golan Heights (Israeli settlement)” or “product from West Bank (Israeli settlement),” the commission said.

This is a brilliant idea, like so many emanating from Brussels. I can think of no better way to advance the peace between the Israelis and the Palestinians than this important labeling initiative.

A worker places labels on wine bottles while packaging them for export at Shiloh Wineries, north of Ramallah on November 8, 2015. REUTERS/Baz Ratner.

But what I don’t understand is: Why stop there? There are so many problems that could be solved by taking a bold labeling stand. Consider:

• Spanish occupied Catalunya
• Indian occupied Kashmir
• Turkish occupied Cyprus
• Syrian occupied Alexandretta
• Armenian occupied Nagorno Karabakh
• Russian occupied Crimea
• Chinese occupied Tibet
• South Korean occupied Korea
• Mongolian occupied Mongolia
• Chinese occupied Scarborough Shoal
• UK occupied Gibraltar
• UK occupied Falklands

There are many, many more. And I am simply amazed that we have not seen the path towards peace in each of these, and the umptillion other territorial disputes out there.

What, you say, but there are no Jews occupying those other places? We only condemn the Jews? Well, of course. Because only the Jews are especially worthy of EU condemnation. Next, a yellow star. Now that would be bold.

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One debate, two perspectives

In contrast to the previous two Republican presidential debates, which were criticized for quirky and “gotcha” questions, the one held in Milwaukee on Tuesday night by Fox Business Network got right into meaty issues with a question on the minimum wage. Bloomberg View’s Ramesh Ponnuru and Paula Dwyer give their blow by blow of some of the issues discussed.

Dwyer: Donald Trump says he’s not sympathetic with people who want a $15 minimum wage. I wonder if that’s going to cost him support among working-class voters.

Ponnuru: Wasn’t much of his case for immigration restriction that it would raise wages? Now he says wages are too high.

Dwyer: Ben Carson says only about 20 percent of black teenagers have a job because of high wages. I’m not sure that’s the reason. I think it’s more because there are just not enough jobs available where they live.

Ponnuru: Marco Rubio is doing a nice job of sketching an alternative way of thinking about expanding opportunity, so that his hostility to raising the minimum wage does not come across as lack of sympathy for people working in low-wage jobs.

Dwyer: Jeb Bush says his economic plan would create “an explosion in investment” in part by cutting Obama’s regulations, including those for controlling carbon emissions and the Dodd-Frank financial reforms. I’m not convinced that Obama rules are strangling economic growth, judging by how profitable many companies have been the last several years.

Ponnuru: The funny thing about the prevailing line on the Fed from my fellow conservatives is that they overestimate its power. They think that low interest rates are entirely a function of Fed policy, and not larger economic conditions. It’s an assumption they rarely defend.

Dwyer: Trump applauds this week’s court decision blocking Obama’s executive order on immigration. He isn’t backing down on the wall, or on sending illegal immigrants out.

Ponnuru: Right, but he has talked out of both sides of his mouth on legal immigration — and has sometimes suggested that he would let a lot of deported illegal immigrants back in.

Dwyer: Bush says it isn’t possible to send back 12 million immigrants, that it would go against American values and tear communities apart. And even having this conversation sends a powerful signal that cheers Democrats, he says. I think he’s absolutely right, but it further makes it hard for Jeb to win over primary voters.

Ponnuru: Anti-immigration activists already hate Bush, and he’s not going to win them over by failing to make his case forcefully. It feels like Ted Cruz is setting up a contrast with Rubio on immigration, and will finish the argument later.

Dwyer: Carly Fiorina mentions state-managed high-risk pools as an Obamacare alternative. But that has been thoroughly debunked. Those pools didn’t work out in the states that tried them. Also, they require subsidies because people with pre-existing conditions face very high premiums in these pools. They are hardly an Obamacare alternative.

Ponnuru: Fiorina has, however, also talked about continuous-coverage protections, which would work alongside high-risk pools. If she also proposed tax credits along the lines of the Hatch-Upton plan, I think you could make a pretty good case that high-risk pools would work better than they have in the past. But in general, Fiorina has avoided committing to much policy substance.

Dwyer: Continuous coverage seems just as unworkable. Most workers don’t understand that, once they are fired or resign from a job, if they don’t keep up their insurance premiums (on their own, without the employer contribution), they become uncovered and have to go into the individual market. And that’s where pre-existing conditions can be devastating financially.

Ponnuru: Both Cruz and Paul are touting tax plans that involve value-added taxes, but they’re not saying so. And Paul is talking about getting rid of payroll taxes without noting that his VAT takes back most of that tax cut for workers.

Dwyer: Rubio is forced to defend his call for a $2,500 child tax credit, which would increase the deficit. He says the family is the most important institution, and is proud of being pro-family. But as Paul points out, it’s a new form of transfer payment, and doesn’t qualify as conservative.

Ponnuru: Paul does not know what he’s talking about. He says that the child credit would be a transfer payment because it doesn’t just give people their tax money back — it gives them money beyond that. That’s not true.

Dwyer: Trump calls the Trans-Pacific Partnership a horrible idea, designed to let China come in through the back door. I expected nothing less from Trump, the Ross Perot of our day. Trump doesn’t understand the $50 billion trade deficit the U.S. has with Mexico. Relative to the increase in global trade, it’s peanuts. Trump also doesn’t seem to understand, as Paul just said, that China isn’t part of the TPP deal.

Ponnuru: Yes, that was a nice moment from Paul.

Dwyer: Trump accuses other countries of manipulating their currencies to get an advantage. That may be so — and no doubt China does that, though less so now than before — but a trade agreement isn’t the place to deal with that. Imagine how handicapped the U.S. would be if a Fed interest-rate cut were judged by trading partners as prohibited currency manipulation?

Ponnuru: Right. The only way to avoid that would be to come up with a definition of manipulation that is highly unlikely to apply to us — but then, why would other countries agree?

Dwyer: Bush calls for higher capital requirements on big banks, which have control over more assets than they did pre-crisis. He’s right on that score. Carson sounds like a Democrat — Bernie Sanders even — when he says we should have policies that stop banks from getting big.

Ponnuru: I’m sure someone else will do a count, but it seems as though Bush is hitting Clinton a lot more than anyone else. The original theory of a Bush campaign was that he was going to be working harder than the rest of the Republican candidates to position himself for the general election. Tonight, at least, he is actually delivering on that promise a little.

Dwyer: Cruz says he’d let a faltering Bank of America fail. Moderator Neil Cavuto is incredulous. Now Cruz is blaming the Fed for tightening in 2008 and collapsing the real estate bubble. So he realizes he stepped into it by saying he’d let a big bank fail, with all the chaos and cascading defaults that would trigger. So he tries to recover by calling for “sound money” and a weaker central bank.

Ponnuru: Conservatives have generally (rightly in my view) criticized the Fed for being too loose from 2003-06, but almost nobody in politics, left or right, criticizes the Fed for being disastrously tight in 2008, which it was. So I was glad to see Cruz make that point.

Dwyer: Kasich says turning the Fed over to Congress scares the heck out of him. Cruz challenges Kasich for saying he’d save Bank of America but not a community bank. Kasich should (but doesn’t) say that’s exactly right — a community bank presents no systemic issues, while BofA does.

Ponnuru: I thought it was a good, relatively substantive debate. If Bush’s backers needed him to have a spectacular performance to reassure them, he failed the test. If they needed steady improvement, he passed it. Rubio and Fiorina had solid performances again. I cannot see Republicans liking what they heard from Rand Paul and John Kasich. I continue to think that Trump is getting more boring as he becomes a regular candidate. And Ben Carson’s appeal doesn’t seem to have a lot to do with his debate performances, which is lucky for him.

Dwyer: I think Rubio really outshone the others. Cruz and Carson were just OK. Bush didn’t stumble but he didn’t sparkle either. Fiorina sounded like a broken record on government-as-socialism and a three-page tax code. Kasich and Paul had their moments, but they weren’t consistent.  And Trump, as usual, faded when the debate turned to actual substance. But at least the moderators didn’t lose control of the discussion this time.

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Bush was better, but is that enough?

A new McClatchy/Marist poll released earlier this week revealed that 58 percent of those surveyed said the more they hear about Jeb Bush the less they like him. Only 32 percent said the more they hear, the more they like him. His marks were worse than any of the other candidates the pollsters asked about, including Trump.

In fairness to Bush, the poll was taken after his weak performance in the CNBC debate. Will his performance in the November 11 GOP Milwaukee debate change those responses? It is hard to erase a negative impression in opinions and negative impressions of him that have been growing. He did well last night but probably not well enough to undo the growing admiration audiences seem to have for Rubio and Cruz, who are the most eloquent debaters. Carly Fiorina is a sharp debater, too, but her interventions seemed to lack the common touch that Rubio projects so well.

Each candidate had strong moments in the main debate, and Chris Christie outshone the others in the early evening contest. The winner in Milwaukee seemed to be Fox and the Wall Street Journal, news organizations that produced a riveting and substantive exchange.

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The price of free speech in Japan

It’s not just American university campuses that are being roiled by clashes over the limits of free speech. At one of Japan’s most prestigious institutions of higher learning, no less than the president himself has just been dismissed by his academic colleagues for publicly supporting Prime Minister Shinzo Abe. The dispute taps into a deeper national debate over Japan’s future.

A favorite claim of liberal academics and activists is that Japan remains one of the most conservative societies. In recent years, their invective has been directed toward Mr. Abe, who is charged with repressing and intimidating liberal views. Media outlets argue that they have been pressured, and academics warn that government forces are trying to stifle debate about the country’s wartime past.

Yet punishing free speech in Japan is no prerogative of the right. Last week, the president of the prestigious liberal-arts college Doshisha failed to be re-elected due to his support earlier this year of Mr. Abe’s controversial security legislation to relax post-World War II restrictions on the use of the military.

The full text of this article will be posted on Monday, November 16.

 

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How substandard medicines drive antimicrobial resistance

Antibiotic resistance already kills over twenty thousand Americans every year; no one knows the real impact on poorer nations. But estimates of the wider impact are beginning to emerge, and the British government claims that drug resistance will cost 6% of global wealth or roughly $14 trillion by 2050.

In my new paper, I discuss a new cause of this growing problem: substandard medicines.

People walk past a chemist shop at a market in Mumbai, India, June 25, 2015. REUTERS/Shailesh Andrade.

Increasing access to antibiotics for the poor has saved millions of lives but it has accelerated resistance. Indian companies make the cheapest antibiotics on the planet and they deserve huge credit for helping the poor. But some of these companies cut corners in production and make substandard products that positively drive resistance.

My research team finds that roughly 6% of the thousands of antimicrobial medicines we procured in emerging markets are substandard, and about half of these are from India.

There are no simple solutions to this problems, though acknowledging the risks is the first step.

Access the new paper here.

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Concerns over Brexit are not scaremongering

Few sayings encapsulate the attitude of British Eurosceptics towards the European Union better than Groucho Marx’s maxim: “I don’t want to belong to any club that would have me as a member.” Witticisms, however, are rarely a good guide to action, especially in a world where no political arrangements, domestic or international, are perfect.

The Heritage Foundation’s Nile Gardiner – probably the most outspoken representative of the British Eurosceptic tradition in Washington – is irked at the latest instance of what he sees as “the meddling by the Obama administration in the internal affairs of the British people.” In a recent article at CapX, he lambasts Michael Froman, the US trade representative, who recently warned that following a potential Brexit, the UK would likely face the same barriers in accessing US market as other countries without a free-trade agreement with the United States.

“The idea that the United States would not sign a free trade agreement with its closest friend and ally, the world’s fifth largest economy, is ludicrous,” responds Mr Gardiner. But is it? It may be worth recalling that, notwithstanding years of negotiations, the United States has not yet signed a free-trade deal with the world’s largest economy and arguably the world’s most significant community of liberal democracies: the European Union.

The reasons are not difficult to comprehend. As tariff barriers and other conventional forms of protectionism hit historical lows, their removal is becoming more and more irrelevant to genuine trade liberalisation. The United States, for example, maintains an average applied tariff rate of just 1.5 percent.

Markets across the Atlantic won’t become more integrated merely by the stroke of a pen abolishing tariffs or quotas. Instead, negotiators need to grapple with complex technical matters. Regulatory barriers can be dismantled by applying the idea of mutual recognition or, alternatively, by harmonising the underlying legal regimes. Complicated intellectual property issues arise in these negotiations, as well as questions of dispute settlement – and all of this is happening against the backdrop of interest groups lobbying vigorously against effective trade liberalisation.

What it means is that, in today’s world, not all free-trade agreements are created equal. The fact that “the US can negotiate free trade deals with Bahrain, Nicaragua and Morocco” says nothing about the market access that the UK would be able to negotiate for itself – especially given the fact that we no longer live in a world of ‘most favoured nation’ clauses, which would enable the UK to piggyback on other, pre-existing, trade arrangements.

The relevant question is not whether the next administration will “snub its nose at Great Britain,” but whether the conditions of an eventual trade agreement would lead to more market integration than the currently negotiated Transatlantic Trade and Investment Partnership (TTIP). Appeals to the ‘special relationship’ aside, the economic gains from to the United States from a comprehensive trade agreement with the UK are much smaller than with the EU as a whole, justifying a proportionately smaller investment of political resources. Moreover, some, such as Dennis Novy from the University of Warwick, add that the UK lacks the administrative capacity to carry on such negotiations better than the EU can.

Any trade negotiations with the United States would be further complicated by the fact that Brexit would be accompanied by protracted negotiations between the UK and the EU, regarding the conditions of the country’s access to the European single market. Irrespective of trade, the regulatory and legal uncertainty would generate costs of its own. London is a global financial capital because financial institutions use it as a gateway to access the EU’s markets. The majority of all EU financial services are conducted through the City of London, a situation that would not be sustainable if the UK was about to make a decisive break with the system of financial services regulation in the EU.

Perhaps the British people should not fear Brexit, as Mr Gardiner advises. But they have legitimate reasons to be concerned, if only because of the uncertainty surrounding its economic effects. While UKIP’s Tim Congdon might claim that the UK is worse off by roughly 11.5 percent of its GDP by being a member of the EU, many economists disagree. Researchers at LSE, for instance, estimate that the Brexit could reduce UK’s national income by as much as 9.5 percent (another LSE paper predicts a reduction of GDP by 1.1 percent under the most optimistic of scenarios).

Even if Brexit does not lead to massive economic dislocations, it is bound to have political consequences. Given the public support enjoyed by EU membership in Scotland, the future of the Union would be unclear. Worse yet, Brexit could be used as a model to follow by populists in other EU countries, typically with weaker democratic traditions. There, the consequences might be far more nefarious than in the UK.

Towards the end of his piece, Mr Gardiner makes a powerful plea for “the United States [to] be on the right side of history.” But America – and America’s defenders of free enterprise – will not be on the right side of history if they become cheerleaders for a collapse of the system of political cooperation in Europe, which has ushered the continent into a historically unprecedented period of prosperity and flourishing of liberal democracy.

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Why Marco Rubio and Ted Cruz are on the rise

Tuesday night’s Fox Business/Wall Street Journal debate in Milwaukee provided clues as to why Marco Rubio and Ted Cruz have been climbing, not by wide margins but perceptibly, into the top polling positions of the candidates behind the two poll leaders, Donald Trump and Ben Carson.

The widespread assumption among political insiders is that in crunch time, when things really matter, Republican voters will abandon the front-runners for candidates with experience in public office. That hasn’t happened yet. But if it does, Rubio and Cruz are clearly better positioned than anyone else.

With his smiling demeanor, unhesitant phrasing and ease at pivoting from one point to where he wants to go, Rubio has become a star in debate formats. He parried his first question, about reducing benefits, to how his modest-income immigrant family achieved the American Dream, how higher minimum wages accelerate automation, to his wider economic program and the need for vocational education: “We need more welders and less philosophers.” All in 333 words.

Asked about automation, he said it took 75 years for the telephone but only one year for “Candy Crush” to get 100 million users, a signal that he’s in touch with contemporary tech, and then referenced his plans to reshape higher education, which has been performing especially badly of late.

Later Rubio defended the per-child credit in his tax plan, attacked by some conservatives as doing nothing for growth, by saying his most important role was as a parent and, in a nod to cultural conservatives, “You can’t have a strong nation without strong values, and no one is born with strong values.”

When Rand Paul challenged his plan as non-conservative, Rubio deftly segued to Paul’s weakness, saying that he “is a committed isolationist” and, citing threats from “radical jihadists,” Iran and China, that “we can’t even have an economy if we’re not safe.”

He returned to foreign policy in his next response to Paul, much later, by calling Vladimir Putin a “gangster” who “understands only geopolitical strength,” hailing Israel’s democracy and arguing that radical Islamists who don’t want girls to go to school are on the march.

Near the end of the debate, Rubio interjected briefly on how big government had strengthened, not weakened, the big banks, and how the Dodd-Frank law “codified too-big-to-fail.” He was echoing a point made by Ben Carson, Jeb Bush, Carly Fiorina and Ted Cruz, but with an especially memorable phrase. “You know what [the big banks] say to people with a wink and a nod? We are so big, we are so important that if we get in trouble, the government has to bail us out.”

How would he stand up to the more experienced Hillary Clinton? “This election is about the future, and the Democratic Party and the political Left has no idea about the future,” he said. “If I am the nominee, they will be the party of the past and we will be the party of the 21st century.” Rubio’s sunny youthful demeanor and his capacity to discuss policy knowledgeably and appeal simultaneously to cultural, economic and national security interests leads many Republicans to conclude he’d be their strongest candidate against Hillary Clinton.

He also was lucky not to be called on (or smart not to volunteer) in the argument between Trump and Bush immigration or in response to Ted Cruz’s denunciation of the (Rubio-supported) sugar subsidy program. That luck may not hold next time.

Cruz got to talk more than Rubio or anyone else and spoke effectively as well. He was on strong ground in arguing that illegal immigration drives down some wages and that “the rich do great with big government” — a great theme for Republicans next fall. He adopted Walter Bagehot’s 1873 recipe for banks during a panic — large loans at high interest. But he sounded high-risk when he said the money supply “should be tied to a stable level of gold”; the gold standard has not been a winning issue since the 1920s.

“I believe that 2016 will be an election like 1980,” Cruz said, “that we will win by following Reagan’s admonition to paint in bold colors, not pale pastels.” But 2016 is not 1980, and sometimes your colors are too bold.

Of course other candidates remain in the race and Trump and Carson, though they didn’t dominate the dialogue, continue to lead in the polls. But it looks like the choice may boil down to Rubio or Cruz.

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A marriage penalty for the poor

Few issues in American politics are more hotly debated than the role of marriage in explaining poverty. Some argue that the decline in marriage is one of the main contributors to poverty and low-income in America. Others argue that economic and structural factors are more important. But whatever side you come down on, it is hard to justify financially penalizing couples with children who choose to marry.

Yet, in a new study, I find that the earned income tax credit does just that. And expansions being discussed in Washington could make things worse.

I analyzed survey data from actual low-income couples in urban areas and found that marriage penalties in the EITC were much more common than marriage bonuses, with between 42 and 48 percent of couples facing a penalty compared to between 10 and 27 percent receiving a bonus, depending on the number and age of children (the remaining couples experienced no change). And the average penalties were quite large: between $1600 and $2600 in today’s dollars. The bonuses were about half as much.

Several proposals, including one by President Barack Obama and newly elected Speaker of the House Paul Ryan, call for increasing the EITC for workers without dependent children. My analysis, which roughly doubled the childless worker EITC and expanded it to higher income levels, confirmed that an expansion would make the marriage penalty somewhat worse. On average, parents who chose marriage would have been worse off by up to an additional $100 in today’s dollars if a childless worker expansion were in place.

The fact that the EITC, and the income tax code in general, treats married and unmarried parents differently is no secret. Marriage penalties in the EITC occur because married couples must file their taxes jointly and consider their combined income, often placing them above the income-eligible threshold or higher up on the phaseout range.

Unmarried parents, even those who cohabitate, file income taxes separately. Their individual income is used to calculate the EITC, often resulting in a higher EITC than if their income was considered together. However, this depends on the distribution of income between the parents. Because the EITC has phased out more gradually at higher income levels for married couples since 2002, marriage can also generate a larger EITC payment if one parent has little to no income.

Existing research highlights these potential marriage penalties and bonuses in the EITC, but primarily relies on hypothetical situations. Few studies look at actual couples, their income and how the EITC would change if they decided to marry, mainly because survey data that links unmarried mothers and fathers is rare.

I used survey data from the Fragile Families and Child Wellbeing study, which is a survey of births in 1998 and 2000 in urban areas. The survey is unique because it oversampled unmarried parents and includes data from both the mother and the father even if they did not live together. Based on reported earnings for both parents, I estimated the EITC when the child included on the survey was 1 and 3 assuming the parents were married and unmarried.

The results confirmed the hypothetical situations: For these parents, marriage penalties in the EITC were real – on average they were quite large – and an expansion to the childless worker EITC would have made things somewhat worse.

Even if the EITC factors little into actual decisions about marriage, these results show real financial penalties for parents with young children who choose marriage. This certainly sends the wrong message from government and may contribute to a culture that minimizes the importance of marriage. Fixing the current situation by completely eliminating the marriage penalty in the EITC would be costly. But at the same time, making the marriage penalty worse by expanding the childless worker EITC seems misguided.

At the very least, if policymakers intend to expand the childless worker EITC, they should also increase the married EITC to match it. And ideally, policymakers would continue discussing how to lessen the overall marriage penalty in the EITC. The government should be on the right side of marriage and not further penalize low-income couples who decide to marry.

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Why political polls are so often wrong

The Real Clear Politics average of polls in the Kentucky governor race, published Oct. 30, showed Democrat Jack Conway leading Republican Matt Bevin 44%-41%. But in the Nov. 3 election Mr. Bevin won 53%-44%. The polls were wrong, election watchers exclaimed, once again. The RCP average of polls just before Kentucky’s 2014 Senate race showed Mitch McConnell ahead of Democrat Alison Grimes, 49%-42%. Mr. McConnell won, 56%-41%.

Kentucky is not the only place where the polls seem to be getting it wrong. The 15 public polls conducted in the week before Britain’s election last May showed the Conservative party leading Labour 34%-33%. Conservatives won the popular vote 38%-31%. The exit poll released at 10 p.m. on election night came closer but projected Conservatives winning 316 seats in the House of Commons, 10 short of a majority. They won 332. Similarly, pre-election polls in this year’s elections in Israel and Argentina seem to have been notably different from actual results.

In all these cases, polls seem to have understated actual support for right-of-center candidates and parties while coming fairly close to actual percentages for those left of center. It may be that some conservative voters, disgruntled with party leaders as poll results indicate, refuse to commit to voting for their parties until election day. Or they may be what in Britain are called “shy Tories,” reluctant to publicly declare themselves because the mainstream media treat conservatism as a stigma.

Continue reading the article at the Wall Street Journal here.

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Donald Trump’s immigration plan would cause U.S. citizens to be deported

“You’re going to have a deportation force.”

 — Donald Trump, Nov. 11

As you heard again during Tuesday’s GOP primary debate, Donald Trump has as a policy goal turning the United States into a police state to facilitate the mass roundup of around 11 million men, women and children who are living in the country unlawfully. He wants to expel them from our borders via a “deportation force.”

His faith in the ability of government to execute this policy — granted, under his tremendous leadership — is (please pardon the repetition) tremendous. It must be said clearly that his plan is morally awful.

Does he understand how his police state would affect the country? Apart from the obvious ways that have been much discussed — breaking up families; a massive disruption for businesses, schools, churches, communities; potentially turning neighbor against neighbor — Trump’s powerful Department of Homeland Security would almost surely end up mistakenly apprehending and detaining U.S. citizens. And probably deporting some of them, too.

Click here to read the full text article.

The full article will appear here on November 19th, 2015.

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Antimicrobial resistance: How substandard medicines contribute

Abstract: 

The possibility of reverting to the pre-antibiotic era is increasing. With dirty hospitals, poor prescribing practices by physicians, and poor patient adherence to correct antibiotic use, the threat was already real. But now an increase in the production of substandard medicines is probably accelerating antibiotic resistance. The UK government predicts that antimicrobial resistance (AMR) could cost society a fortune within decades. The threat of AMR is increasing because of poor-quality medications, and India is ground zero when it comes to most of the problems. Given that antibiotics are so cheap in India, antibiotic use is, in effect, a substitute for proper sanitation. It is not surprising that new versions of AMR are now emanating from India. My team’s research shows that at least 6 percent of thousands of antimicrobial medicines sampled from 19 emerging nations are substandard. In nearly every nation, poor-quality medicines made in India were found. Of the substandard products we procured, 40 percent were made by legal and government-protected Indian manufacturers. But India is not the only problem case, and a global effort is required to identify sloppy production and prevent these products from being used.

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Antimicrobial resistance: How substandard medicines contribute

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The earned income tax credit and marriage penalties: Does a childless worker expansion make them worse?

Key Points

• The earned income tax credit (EITC) is an effective tool to reduce poverty, but it penalizes marriage. Existing research primarily relies on hypothetical situations to document EITC marriage penalties, with little empirical work exploring penalties based on real-life situations.
• This paper analyzes survey data from low-income parents with young children in urban areas and finds that EITC marriage penalties are more prevalent and larger than marriage bonuses. Expanding the childless worker EITC, as some have proposed, would worsen marriage penalties but by fairly small amounts.
• If enacted, policymakers should at least match the childless worker EITC expansion with a married family expansion and consider additional steps to reduce the overall EITC marriage penalty.

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The earned income tax credit (EITC) is one of the largest government transfers for low-income families in the United States. In tax year 2013, $68.1 billion was distributed to more than 28 million tax filers.[1] As an antipoverty tool, the program has proved quite effective. The EITC lifted more than six million people out of poverty in 2014.[2]

However, a frequently cited concern about the EITC is that it penalizes marriage. Because of its structure, some low-income couples who share a child can receive a much larger benefit if they are unmarried than if they were to marry. As a result, efforts to reduce the EITC marriage penalty have been incorporated into the federal income tax code since 2002, with the most recent expansion in 2009.

Existing research suggests that concerns about marriage penalties in the EITC may be overly cautious, but more empirical work is needed to identify whether penalties exist when actual—rather than hypothetical—situations are considered. In addition, with proposals to expand the childless worker EITC gaining attention, a better understanding of how an expansion might affect marriage penalties is important. This paper analyzes survey data from a cohort of unmarried parents with young children in urban areas to assess the extent to which EITC marriage penalties are real and the implications of increasing the childless worker EITC for potential marriage penalties.

Background on Marriage Penalties in the EITC

The benefits of marriage for children are well documented. Married households tend to have higher incomes than unmarried households, and this income advantage is associated with better outcomes for children.[3] However, even when controlling for income, children in married families do better. A comprehensive review of the literature in the Annual Review of Sociology in 2013 concluded a causal link between children growing up without a father and adult mental health problems, lower high school graduation rates, and more child social adjustment problems.[4]

Yet, according to the Pew Research Center, more than one-third of children lived with a single parent or with unmarried, cohabitating parents in 2013.[5] This is almost two times the rate of children living outside of marriage in 1980 and four times that of 1960.[6] Because the benefits of marriage are clear, reversing these trends should be an important public policy objective. Reducing marriage penalties in social welfare programs may be part of the solution.[7]

It is no secret that the United States federal income tax system treats married couples differently than unmarried couples, even when they share children.[8] In some ways, the income tax system is more favorable to married couples than unmarried couples, but in other ways it penalizes marriage. The EITC is often cited as a tax expenditure that penalizes marriage.[9]

The EITC provides a refundable tax credit based on the earnings of a tax filing unit. The credit phases in and out at different earnings levels and is more generous for families with children. Married families must file a joint tax return to be eligible for the EITC, and combined spousal income is used to calculate the credit, whereas the earnings of unmarried parents are considered separately in calculating the EITC. Recognizing that this penalizes marriage, Congress changed the EITC in 2002 so it phases out more gradually at higher income levels for married couples, which partially offsets but does not eliminate the penalty.

A childless worker EITC is also available to workers who do not have a resident child. It is much smaller than the family EITC and phases out at lower earnings levels. But it means that unmarried parents can receive both the family EITC and the childless worker EITC depending on the earnings of each parent, whereas married parents cannot.

Proposals to expand the childless worker EITC have received attention in recent years as a way to shore up low wages for workers without dependent children. Most recently, versions of an expansion were included in President Barack Obama’s Fiscal Year 2016 Budget and in House Ways and Means Committee Chairman Paul Ryan’s antipoverty blueprint, which roughly doubles the EITC for childless workers and extends it to higher income levels. While certainly not the goal, the implication of the proposed expansion is that it will likely increase the marriage penalty.

Research has shown that the EITC’s structure can both penalize and subsidize marriage. Unmarried couples who earn similar incomes likely face an EITC penalty if they were to marry. But unmarried couples with disparate incomes might get an EITC bonus for marrying because of the more gradual phase out at higher income levels for married families.

In examining hypothetical situations, Kyle Pomerleau of the Tax Foundation found in 2015 that low-income couples with similar incomes who marry can face tax penalties of up to 12 percent of their income, largely driven by EITC penalties.[10] But couples in which only one person works or one person earns much more than the other can face marriage tax bonuses of up to 20 percent of their income.[11] Others have similarly explored hypothetical EITC marriage penalties based on different income scenarios, typically finding that penalties can be quite substantial.[12]

While marriage penalties based on hypothetical scenarios are helpful to know, better estimates of marriage penalties for real low-income families are also important. In 2005 Gregory Acs and Elaine Maag from the Urban Institute used data from the 2002 National Survey of the American Family to examine unmarried, cohabitating couples. They found that more low-income couples (couples who are under 200 percent of the federal poverty level) would receive tax bonuses if they were to marry than would be penalized, because many couples only had one earner.[13] Although their research examined the tax and transfer system as a whole and not just the EITC, it included marriage penalties and bonuses associated with the EITC. The results suggested that concerns about EITC marriage penalties based on hypothetical scenarios may be overly cautious.

Adding to the debate over the importance of EITC marriage penalties is the extent to which couples actually factor tax benefits or penalties into their decisions around marriage. Qualitative research by Laura Tach and Sarah Halpern-Meekin in 2014 suggested that penalties associated with the EITC factor little into decisions around marriage.[14] Of the individuals they interviewed, few identified the EITC as a reason to marry or stay unmarried, with many citing the idea that the EITC might influence marriage decisions as impractical. However, many identified ways that they manipulate their tax filings to maximize their refunds, suggesting that they are aware of how marriage affects their taxes.

Conversely, Hayley Fisher in 2011 examined the impact of the tax system (not just the EITC) on marriage using data from the Current Population Survey and found that marriage penalties decreased the probability of marriage among cohabitating couples and that low-educated workers were most affected.[15] This suggests that decisions around marriage might well be influenced by the tax system.

But the existing research is far from conclusive. The Acs and Maag study did not focus exclusively on the EITC, and it included only cohabitating couples because it argued that cohabitating couples are more likely to marry than unmarried parents not living together. The authors also included couples with children of different ages. But understanding the EITC marriage penalty for noncohabitating parents and understanding the dynamics of the EITC marriage penalty early after the birth of a child may also be important.

For these reasons, this study explores how the EITC marriage penalty may affect the finances of low-income couples based on their actual reported earnings rather than hypothetical situations. Although this exercise remains speculative, it provides a more complete picture of how marriage penalties associated with the EITC might affect actual low-income parents.

In addition, this study makes two additional contributions to the existing literature. First, it factors in changes to the EITC since 2009 that have reduced the marriage penalty, even though these provisions are set to expire in 2017 unless Congress acts.[16] Second, this study explores implications of the proposed EITC expansion for workers without qualifying children (known as childless workers) on the marriage penalty. These expansion efforts might increase marriage penalties at the same time as provisions to reduce marriage penalties are expiring.

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Notes 

1. US Treasury, Internal Revenue Service, “SOI Tax Stats: Individual Statistical Tables by Size of Adjusted Gross Income,” http://ift.tt/1Kam1ns.
2. Kathleen Short, “The Supplemental Poverty Measure: 2014,” US Census Bureau, 2015.
3. Paul Amato, “The Impact of Family Formation Change on the Cognitive, Social, and Emotional Well-Being of the Next Generation,” Future of Children 15, no. 2 (2005).
4. Sara McLanahan, Laura Tach, and Daniel Schneider, “The Causal Effects of Father Absence,” Annual Review of Sociology 38 (2013): 399–427.
5. Gretchen Livingston, “Less Than Half of US Kids Today Live in a ‘Traditional’ Family,” Pew Research Fact Tank, December 22, 2014, http://pewrsr.ch/1zW782T.
6. Ibid.
7. Douglas Besharov and Neil Gilbert, Marriage Penalties in the Modern Social Welfare State, R Street Policy Study no. 40 (2015), http://ift.tt/1OawK3b.
8. Congressional Budget Office, For Better or for Worse: Marriage and the Federal Income Tax, June 1997, http://ift.tt/1QxqUKm.
9. Hayley Fisher, “Marriage Penalties, Marriage, and Cohabitation” (working paper, University of Sydney Economic Policy, 2011–12), http://ift.tt/1O5jYlj.
10. Kyle Pomerleau, “Understanding the Marriage Penalty and Marriage Bonus,” Tax Foundation Fiscal Fact no. 464 (April 2015), http://ift.tt/1QxqUKo.
11. Ibid.
12. See Besharov and Gilbert, Marriage Penalties in the Modern Social Welfare State; and Elaine Maag and Gregory Acs, The Financial Consequences of Marriage for Cohabitating Couples with Children, Urban Institute, September 2015, http://ift.tt/1O5jYll.
13. Gregory Acs and Elaine Maag, “Irreconcilable Differences: The Conflict between Marriage Promotion Initiatives for Cohabiting Couples with Children and Marriage Penalties in Tax and Transfer Programs,” Urban Institute, New Federalism Series B, no. B-66, April 2005.
14. Laura Tach and Sarah Meekin-Halpern, “Tax Code Knowledge and Behavioral Responses among EITC Recipients, Policy Insights from Qualitative Data,” Journal of Policy Analysis and Management 33, no. 2 (2014): 413–39.
15. Fisher, “Marriage Penalties, Marriage, and Cohabitation.”
16. Tax Policy Center, “EITC Historical Parameters,” http://ift.tt/1OBWbIL.

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